THE IMPORTANCE OF LIFE INSURANCE

&
A NEEDS ANALYSIS APPROACH

© 2016 Centric Capital Advisors CENTRIC CAPITAL ADVISORS


Thinking backwards: Don’t
put the cart before the horse
Without a Needs Analysis you won’t
understand how much life insurance
you actually need. What is a Needs
Analysis? Also known as a Needs
Approach, it simply means
determining how much life insurance
is necessary for an individual or family
to cover their needs.
Many people are tempted to get the
whole process of buying life insurance
over with as quickly as possible, and
therefore just want to pick an amount
that sounds good, and go with that.
This approach is not recommended. A
little bit of extra time with your
trusted financial advisor to think
through these details could mean the
difference between your loved ones
having their needs met or not.
CENTRIC CAPITAL ADVISORS
Are you one of those people who want to discretely walk the other
way when you hear someone discussing life insurance? It’s
definitely not the most popular topic at parties, and there are even
those who would rather get a root canal than sit down to talk with
a life insurance salesman. Let’s face it, none of us want to dwell on
the subject of our own mortality. However, we do want to ensure
that regardless of future events or the timing of those events, the
well-being of our families and our businesses is secure.
So how do we get to that point? The goal of this paper is to help
you understand the importance of getting the life insurance you
need through an approach known as a Needs Analysis.
Hopefully, by the end of this paper, you’ll actually be looking
forward to the process of making sure you have the life insurance
you need.
More than just the funeral: Past, present, future
Life insurance is a contract with an insurance company. The insured
chooses a beneficiary, and makes premium payments. Upon the
death of the insured, the insurance company will provide a lump-
sum payment, commonly known as the death benefit, to the
beneficiary.
One purpose of life insurance is to protect the beneficiary from the
loss of income and subsequent financial impact of the death of the
insured. Many of us have not taken the time to actually think
through what this financial impact would be for our loved ones.
Dusty Farber, CES, the CEO and Founder of Centric Capital Advisors,
explains the importance of getting the life insurance you need, no
matter who you are or where you stand financially. “Life insurance
is an essential financial instrument for young families to high net
worth clients. It is the planning we all can afford in some fashion
and need to make sure we implement to protect those we love and
provide for either in business or in our personal lives.”
Life insurance is not just for individuals and families, though.
Business owners also need to take the time to make sure their
business is prepared for any potential risks. This is widely known as
enterprise risk management. We will discuss this important concept
a little later after focusing on using a Needs Analysis for individuals
and families.
 Immediate Expenses
What are some of the expenses that would occur immediately after the insured’s passing? The first
THE IMPORTANCE OF LIFE INSURANCE & A NEEDS ANALYSIS APPROACH

thing that most people think of is the funeral and the burial, and all of the associated expenses.
Another vital immediate expense to consider is outstanding medical bills. Large, unresolved
medical bills arriving in the mail soon after a loved one’s death can be quite a shock to a family
working through their grief.

Ongoing Expenses
Life goes on, and so does the cost of living. Outstanding debt is something that none of us would
want to leave our families with. Debt is always a big issue, but the risks associated with being in
debt are heightened even more when one source of income for the family has been lost. The
mortgage is another large portion of a family’s budget that would fall under the category of
ongoing expenses.

Future Expenses
Future expenses would include things like day care, private schooling or college funding for
children, as well as long-term care for the surviving spouse. Wedding expenses for children is
another item among many others that might be considered. Many times it takes years for a family
to make the necessary adjustments in order to live comfortably without the income of the
deceased. Depending on your particular circumstances, your financial advisor can help you think
through potential future expenses that will need your consideration.

First, how much do you need?

Determining how much life insurance is needed isn’t as much of a headache as you might think, but
it’s also not just a random number pulled out of a hat. Your financial advisor knows exactly what
questions to ask, and can walk you through a Needs Analysis so that you’ll know for sure that you
really do have the amount of life insurance you need.

Second, what product do you need?

There are many different types of life insurance out there such as term, whole life, universal,
indexed and variable universal life and survivorship life. For practical purposes, we are going to
discuss the two most common types of life insurance: term and whole life. Once you understand
the difference between the two, talk with your financial advisor about all the options in order to
find the very best choice for you.

CENTRIC CAPITAL ADVISORS

Term:
Term life insurance is like renting a home compared
to owning it. This is usually a lot less expensive than

THE IMPORTANCE OF LIFE INSURANCE & A NEEDS ANALYSIS APPROACH

whole life, and can be a very economical way to
provide life insurance protection for a set period of
time. Term life insurance does not have accumulated
cash value, and will expire when the time period you
selected is up. A term policy may be converted to
more permanent coverage such as whole life or
universal life. Term is ideal for those who wish to
provide protection for their families at a relatively
reasonable price for a specific amount of time.

“Most of us are renters before we are buyers. Owning your policy and creating equity at some
point is a way of ensuring our family/business liquidity needs are covered, and ensuring future
insurance needs are covered when we are older, as we may develop health conditions that cause
us to be uninsurable for new coverage.” Dusty Farber, CES, who specializes in life insurance,
explains how insurance needs change over time. “All of us that have those we love or have a
business have a need for life insurance. After 35 years in the business it is clear most of us need it
forever. The basic need for it evolves and changes over our lifetime.”

Whole life:
Whole life is permanent protection for life, not a specific amount of time, and it does not expire as
long as your payments continue. This type of policy is like owning a home instead of renting it. A
whole life policy can be customized for flexibility and allows you to build tax-deferred cash value,
which can be used for expenses like education, loans, or mortgage payments. The cost of whole life
is generally going to be more than term, but its coverage and value don’t expire. Whole life is ideal
for those who want to leave the legacy of a significant financial asset.

“How do you think families like the Kennedy's, Mellon's or Carnegie’s preserve their assets and pass
along wealth,” asks Farber. “They do it through proper wealth and estate planning and buying large
amounts of life insurance in trusts to create liquidity to pay estate taxes and pass the core wealth
to generation after generation.”

How do you know which product is best? There are many factors to take into consideration when
answering this question. Just a few of these are your current age, your health status, the health of
your significant other, whether or not you have children, and if you do, their current ages. Other
factors are your average standard of living and what that entails as far as expenses, your financial
goals and your other investments and options for income.

CENTRIC CAPITAL ADVISORS

Know you current needs

There are those who have spent much

time and effort putting together an
investment portfolio, and if you ask
them, they can tell you exactly how
each of their investments is doing and
how last year’s gains are stacking up
to this year’s so far, and more.
However, if you ask that same person
Know what your family will need for final
how much money their household
expenses
spends each month, and where it all
goes, they may not be able to give you Your financial advisor can give you an idea of what your family might
need, but this would all depend on some more specific factors.
a clear answer. Even if you are
Funeral expenses can vary, but generally include fees for the basic
someone who has faithfully tracked
services of the funeral director and any staff, the viewing and
expenses and income, and attempted ceremony, the cemetery and graveside, transportation, and any
to live within the guidelines of a merchandise including floral arrangements, monuments or
budget, if you haven’t gone back to memorials. This would be a good time to go ahead and think through
some details, and make sure your loved ones know your wishes so
revisit some of those facts and figures
they have as few decisions to make as possible during a difficult
in the last couple of years, you may
time.
find that some of those numbers have
shifted over time. Know your family’s future needs
None of us can know what the future holds for our families,
Your financial advisor can help you
especially after we’re gone. Depending on the circumstances when
pull together the information you
there is a loss of income, some families may temporarily need to
need so you’ll know exactly what your take on additional debt. The possibility of large medical bills is
current needs are and how those another very likely scenario that should be thought through. College
needs will become a vital part of this funding is also a very important consideration when thinking of
future needs. The main idea, though, is that you’d like for your
approach to determining the amount
family to be provided for no matter what big or small events occur.
of life insurance that’s right for you.
The choices you’re making now about life insurance can shape your
family’s future.

CENTRIC CAPITAL ADVISORS

Taking care of business:
Enterprise risk
We’ve already briefly mentioned enterprise risk management,
which is a term that refers to a business strategy that helps a
company prepare for any risks that could interfere with a
company’s goals and well-being. One of those risks is the loss of
the business owner, an employee who is responsible for the
majority of profits or someone who may have a unique skill set
that is vital to the health of the business.
The cost of a buyout
The issue that often comes up with shareholders is how to come
up with the lump sum in order to fund a buyout in the event
that they have to purchase shares with little or no notice. One
approach that a company can take is to purchase a life
insurance policy on each shareholder in order to cover the
funding or at least the down payment for repurchase
obligations. In the event that the shareholders will be the
buyers, they can purchase policies on each other to help defray
the cost of a buyout.
As an owner, partner or co-owner of a business, you have
invested years building a financial interest in your company. One
reason to set up a buy-sell agreement is to provide a way for
your surviving family to sell your business interest. Life
insurance is a widely accepted way for businesses to fund a buy-
sell agreement. If you choose life insurance as your funding
method, upon your death, the policy owners receive the death
benefit as payment for your interest. If all goes as planned, your
family gets a sum of money they can use after your death, and
the company has ensured its continuity.
In all truth, enterprise risk is a subject that is as wide and varied
as individual businesses. If you own a business, make sure you
carve out the time to sit down with your financial advisor to
discuss all the options, and to find out how the right insurance
policies can provide financial peace, stability and continuity for
your business.
CENTRIC CAPITAL ADVISORS
Key man insurance
Many businesses take out a form of life
insurance commonly known as key man
insurance. The purpose of this type of
insurance is to compensate the business
for financial loss that would occur upon
the death or disability of an important
member of the business. If your business
has an employee whose work,
knowledge, skills or overall contribution
is uniquely valuable, you may want to
consider talking to your financial advisor
about an insurance policy that would
ensure business continuity through a
fixed monetary sum in the event of the
loss of an important executive or team
member.
Buy-sell agreement
Another area of enterprise risk that
business owners need to consider is a
shareholder agreement. When there is a
company with two or more owners,
there needs to be a provision for what
should happen upon the death or
disability of individual shareholders or
limited liability company members. The
buy-sell portion of a shareholder
agreement will address the right or
obligation of one shareholder to
purchase the shares of another
shareholder when certain events take
place. The parties who are part of a
shareholder agreement can utilize
insurance to help the company maintain
continuity in the event of a shareholder’s
death or disability.
 Where to Start: Avoid procrastination
THE IMPORTANCE OF LIFE INSURANCE & A NEEDS ANALYSIS APPROACH

Gather your information

Now that you know some of the categories that will necessarily be discussed during a Needs
Analysis, go ahead and pull together some information before you schedule an appointment with
your financial advisor. If you’re unsure about what information might be necessary, most financial
advisors are happy to help. Possessing the knowledge you need, or having the means to seek it out
can mean the difference between your family feeling unsure about how to meet their financial
needs after you’re gone, or feeling grateful that you took the time to make sure their needs would
be provided for.

Online calculators and resources

Thanks to the internet, a quick search will bring up numerous online calculators and other
resources that can help you begin to see how important analyzing your needs for life insurance is.
Using an online life insurance calculator, even if you just guess at the numbers the first time
through, can help you think through
the whole process of how a Needs
Analysis works and what the right
life insurance policy might mean for
you. While online calculators are a
good place to start, one particular
form won’t work for everyone since
each person’s situation and needs
are different. A good financial
planner will start with a basic form,
but will customize the questions
according to each client and go
deeper in order to come up with a
more accurate figure.

CENTRIC CAPITAL ADVISORS

 Consult a professional
INTERNATIONAL & GLOBAL INVESTING: THE WORLD IS AT YOUR DOORSTEP

It’s time to make an appointment with your financial

advisor to talk about life insurance. Hopefully, the
thought isn’t as daunting as it may have been. Once
you have the right policy in place, remember that
because your needs evolve and change throughout life,
it’s important to revisit your policy on a regular basis to
consider any changes that might need to be made. Ask
your financial advisor for guidance about when you
should come back in for an insurance check-up.

Next time you come upon a discussion about life

insurance, you won’t feel the need to make a hasty
retreat. Instead, you will be able to discuss the options
intelligently, and even help those who may be on the
fence understand the importance of taking the next
step to sit down with a financial advisor for a Needs
Analysis to ensure that the right policy is in place to
face the future with confidence.

CENTRIC CAPITAL ADVISORS

Centric Capital Advisors, Inc.

12424 Wilshire Blvd.

9th Floor
Los Angeles, CA 90025

Phone: 310-579-9060
Fax: 310-579-9060
Email: info@centricca.com

Securities and Investment Advisory Services offered through NFP Advisor Services, LLC, member FINRA/SIPC. NFP Advisor Services, LLC is not
affiliated with Centric Capital Advisors, Inc.